City Focus: Hands' reign at EMI hits new low

Guy Hands' controversial stewardship of EMI has reached a new nadir after the ailing music group hoisted the For Sale sign above its historic Abbey Road studios this week.

For sale: EMI's historic recording studios were made famous by The Beatles album Abbey Road

To many eyes, the tycoon's ill-starred foray into the music business has badly tarnished his reputation as the most talented financier of his generation, with an estimated £200m personal fortune to match.

The forced sale of the West London studios - the source of a welter of classic recordings from Edward Elgar's 1931 version of Land Of Hope And Glory to The Beatles' Sergeant Pepper's Lonely Hearts Club Band - is just the latest embarrassing setback to have befallen Hands since buying the music giant for £4.2bn in 2007.

The label behind Coldplay and Lily Allen lost a mammoth £1.75bn last year, and Hands' Terra Firma buy-out vehicle has written down £1.7bn, or 90%, of its investment in EMI.

On top of that is the increasingly bitter legal battle Hands is waging with Wall Street giant Citigroup, which loaned Terra Firma a jaw-dropping
£3.3bn to finance the deal at the height of the buy-out bubble.

The tycoon alleges that the bank gulled him into overpaying for EMI and is fighting Citi's attempts to shift the case from New York to the High Court London - a move that, Hands argues, threatens his status as a tax exile.

In an extraordinary legal filing, Hands revealed that he has 'never visited' his wife and children at their family home since swapping Kent for Guernsey last April in protest at a hike in the capital gains tax.

Only an 'emergency' would see him come to see his parents on the mainland, he added.

Guy Hands: Estimated personal fortune of £200m

The revelations evoke images of a Macbeth-style figure observing the disintegration of his empire in increasing isolation.

Failure, it seems, has been hard to stomach for the Kent grammar school boy who rose above his dyslexia to win a place at Oxford University. There, he befriended future Conservative leader William Hague, who was best man at his wedding.

From university, Hands landed a job as a trader at deep-pocketed investment bank Goldman Sachs.

But he did not start making serious money until he defected to Nomura in 1994, where he set up a division that used the bank's cash to invest in underperforming businesses.

At the heart of his success was a form of financial alchemy called 'securitisation', where he would borrow capital to fund deals through the cashflows of his takeover target.

Nomura and Hands himself made spectacular returns as they snapped up assets like a 57,000 portfolio of British army homes and Angel

Trains in the mid-1990s. Impeccable timing was, in retrospect, the key to his success.

Property prices were depressed at that time following the recession of the early 1990s, but would soon rise sharply.

The £1.9bn takeover of the Le Meridien hotels chain was not as well timed. Struck just months before the September 2001 terrorist attacks, Hands loaded Le Meridien with so much debt that it was unable to withstand the subsequent downturn in the travel industry.

In 2003, his Terra Firma vehicle wrote off their entire investment in the hotel group.

Similar forces have come to bear on his disastrous takeover of EMI, with the deal struck on the eve of the most painful credit crunch since the 1930s. Hands was convinced his hard-nosed ways would turn sleepy EMI into a world-beater.

But many artists, including Radiohead and Robbie Williams, became alienated by his abrasive style.

Although badly hit by collapsing CD sales, EMI's troubled recorded music division appears to have turned the corner.

There is no doubt, however, that the group is on the financial critical list. Hands recently admitted that EMI is worth £2bn less than he paid for it just three years ago.

And because he grossly overpaid for EMI, its debt mountain looks too vertiginous to surmount.

Hands must persuade Terra Firma investors to stump up a further £105m to avoid breaching the terms of its loans, or risk losing control of the company.

Even if Terra Firma and its backers come up with the cash, this would only give Hands until next spring either to agree a new refinancing plan or get the US bank to write off part of its debts.

Given the growing enmity between the two sides, a rapprochement looks like a distant prospect.